Hungarian banks’ lending capacity fell in the fourth quarter to a level last seen in September 2008, when the financial crisis engulfed the country, because of tighter and more expensive funding, the central bank said.
“The deterioration in lending capacity was last reported by such a proportion of banks upon the outbreak of the September 2008 crisis,” the Budapest-based Magyar Nemzeti Bank said in a report today. The drop in lending capacity is driven by shrinking external funding and rising foreign-currency funding costs, it said.
Eastern Europe’s recovery from the 2009 economic slump has been obstructed by Europe’s debt crisis through trade and banking links. Western European lenders, including UniCredit SpA (UCG), Erste Group Bank AG and Societe Generale SA (GLE), which control about three-quarters of the region’s banking industry, are selling assets and raising capital to meet more stringent capital and liquidity requirements, curtailing credit to households and businesses in the east.
Hungary’s banks turned unprofitable for the first time in 13 years in 2011 because of losses caused by the government forcing lenders to swallow foreign-currency mortgage losses, rising bad loan provisions and a special industry tax. Regional competition is making it more difficult for the industry to access external funding, the central bank said.
“Hungary is among the most exposed of the economies in emerging Europe to European bank deleveraging due to high perceived policy risk,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, wrote in an e-mail today. Banks would consider a planned financing agreement with the International Monetary Fund and the European Union (CICAMOP) a “policy safety net around them with regard to ’off-piste’ policy initiatives,” Ash said.
Prime Minister Viktor Orban’s government wants to restart negotiations with the two international lenders on financial aid after talks broke down last year over a central bank law that the EU said threatened monetary-policy independence.
A net 70 percent of banks involved in the survey expect funding conditions to worsen in the first half of 2012, according to the study. Banks plan to tighten credit criteria for corporate loans in the first half of 2012, it said.
‘Much Lower Level’
“In 2012, credit demand will be at a much lower level -- in fact it already is,” said Radovan Jelasity, chief executive officer at Erste Bank Hungary Zrt., the local unit of Erste Group Bank AG. (EBS) The central bank’s 7 percent benchmark rate, the highest in the EU, is suppressing prospective homebuyers’ willingness to borrow, he said.
Commercial banks had a combined loss of 92.6 billion forint ($428 million) last year, the financial supervisory authority, or Pszaf, said on Feb. 23. OTP Bank Nyrt. (OTP), the country’s largest lender, competes with Italy’s Intesa Sanpaolo SpA (ISP) and UniCredit SpA, Austria’s Erste and Raiffeisen Bank International AG (RBI), and Germany’s Bayerische Landesbank.
The IMF, the European Bank for Reconstruction and Development, the World Bank (NKWGRAS) and the European Investment Bank, which spent $42 billion after the collapse of Lehman Brothers Holding Inc. (LEHMQ), should “stand ready to provide external assistance and financial support to banks,” the Vienna Initiative group of regulators and policy makers said in a statement after a meeting in the Austrian capital on Jan. 16.
The risk of “excessive and disorderly deleveraging as well as a credit crunch” looms over the region, they said. The lenders, which bankrolled eastern Europe’s boom before the 2008 credit crunch, are already squeezed by deteriorating loan quality and slowing economic growth.
The most important providers of credit are Austrian banks, which collectively lent $266 billion to eastern European households, companies and governments, according to the Bank for International Settlements.
Their engagement prompted Austrian banks, together with their finance ministry and central bank, to start a group dubbed the “Vienna Initiative” in 2009.
The group, which consists of western banks active in the region and the official bodies that are meeting in Vienna next week, helped stabilize the region in 2009. That was achieved by a collective commitment by the banks not to reduce their lending in the region and by the international lenders to help with funding.
Hungary’s foreign-owned banks, which pledged to maintain lending as part of a 2008 bailout deal, recall being “tricked” by a bank tax imposed two years later, Jelasity said. Erste Hungary had a 158 billion-forint ($730 million) net loss last year against a 109 million-forint profit in 2010.
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